How to separate your finances during a divorce

One of the unfortunate situations that many of us experience is divorce. Even though the divorce rate is falling, it is still a relatively common occurrence. When you find yourself in this situation, you will need to figure out how to disengage your finances, as well as your lives.

Dividing assets and liabilities

The first thing you have to figure out is how to divide the assets and liabilities. If you live in a community property state, assets and debts acquired during the marriage (except in certain circumstances) are likely to be considered equally shared. Otherwise, what’s in your name is likely to remain your responsibility and what is in your soon to-be ex’s name remains his or her responsibility.

Even if you have some of your accounts in separate names, there is a good chance that you have real property bought during the marriage, and that will need to be divided up. In the case of my divorce, we had to determine who would take which pieces of furniture, where the Blu-ray collection would go and what to do with all of the kitchen appliances.

You also need to figure out who will be responsible for the debt. In many cases, someone who takes more assets might need to take more debts. It’s not always divided 50/50. If you can make the decision on your own, with your ex, and present something reasonable to the state, you can avoid having a judge divide it up for you.

Joint accounts

One of the biggest things you’ll need to do when you begin to separate your finances is to close joint accounts and figure out where the assets or liabilities will be assigned. It’s especially important to close joint accounts if you are concerned about your ex spending down the account (or racking up extra debt).

With credit cards, you might need to transfer balances (or portions of balances) from the joint cards to accounts in your own name. It’s also a good idea to open your bank account if you don’t have one. Then, you can divide your joint account assets and put them into your own accounts.

Another option is to have one of you open his or her own account and then remove that person from the joint account. My ex and I followed this path. We had to jump through a couple of hoops (including filling out a notarized form), but his name was removed from the joint account and then I wrote him a check for an agreed-upon amount for deposit in his own account. This worked well for us because I kept the insurance policies (he was removed from them) and other automatic-debit transactions. I didn’t want to change all of that information on top of dealing with the divorce.

It’s important to understand that both parties are responsible for joint accounts. Even if a divorce decree says that one person should pay off a joint credit card, the card issuer doesn’t care. If your spouse is supposed to make payments, but doesn’t, your credit will suffer. This is why it’s important to close joint accounts and make sure the debt is properly transferred to the person who will be paying it off.

Mediation or a kitchen table divorce

If you want an expensive divorce, get the lawyers involved. Separating your finances during a divorce goes better if you can sit down and work it out with a mediator or on your own. My ex and I don’t have animosity toward each other, and we worked out a division of assets without bickering. We had very little debt (a car loan, which I assumed because I am keeping the car involved) and a small consumer loan from our cross-country move last year. I also assumed that debt because I have a higher income and because I kept more of our shared belongings, requiring him to purchase more items to outfit his new home.

We didn’t have any joint investment accounts; we each keep our retirement accounts, and I kept the investment accounts I opened on my own. After we made the divisions, we brought in one of my relatives, who is a lawyer, to file the paperwork properly. In many states, you can also use a mediator to sit down with you and help you divide the assets and liabilities as equitably as possible.

It’s important to be honest with the situation as you separate your finances. If things do get nasty, and a judge looks at everything, you don’t want the discovery process to find that you have been lying about your situation or hiding assets and running up debts. This could cause bigger problems down the road.

Every divorce is different, but you will need to separate your finances as part of the process. As long as you try to approach it as rationally as possible, you can avoid a great deal of expense, and you can make the separation as simple as can be expected.